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It turns out Kohlberg Kravis Roberts & Co. isn’t the only one to stop and smell the roses.
The buyout shop, which earlier this year invested in Ethiopian flower company Afriflora, is one of a number of global players drawn to the growth prospects of Africa.
Investment by international shops more than doubled in the first half of the year to $1.5 billion compared with $621 million during the same period a year earlier, data from law firm Freshfields Bruckhaus Deringer show.
As KKR’s deal in Ethiopia indicates, interest is expanding beyond South Africa, which has historically commanded the bulk of global firms’ foreign investment.
According to Freshfields, between 2004 and 2009, 75% of capital invested by global firms was in South Africa. Between 2009 and 1H 2013, that figure was 10%.
Although the percentage of capital it is attracting has diminished, South Africa will likely remain a destination of choice for global investors. Citing data from CDC Group PLC, Emerging Markets Private Equity Association Director Mike Casey noted at the African Development Forum that there are roughly 3,100 companies on the continent that generate revenue of at least $50 million. Of that pool roughly 42% are in South Africa.
“South Africa has still got great demographics and sophisticated credit markets,” said Rob Cant, a senior associate in Freshfields’ Dubai office. “But now there are other jurisdictions for firms to invest.”
Indeed, growth in Sub-Saharan Africa has moved at a swift clip–Nigeria’s gross domestic product sailed past South Africa’s earlier this year–and global firms are interested in finding ways to capitalize on those gains.
Driving that growth is a young, and increasingly urban, population, and expanding wealth, said Mitchell Presser, head of Freshfields’ U.S. mergers and acquisitions practice.
The demands of those changing demographics have given rise to investment opportunities in consumer-finance and agribusiness, said Mr. Presser. For example, Standard Chartered Private Equity doubled down on its investment in Afrifresh, an agricultural company that operates along the entire food supply chain in South Africa and Zimbabwe.
Investments in 2014 have run the gamut. Goldman Sachs Group Inc. teamed up earlier this year with IFC Asset Management Co. and African Infrastructure Investment Managers to invest $490 million in IHS Holding Ltd., a telecommunications infrastructure company based in Nigeria, with towers in Cameroon and Cote d’Ivoire.
And Carlyle Group, which closed its first dedicated Sub-Saharan Africa fund in April, teamed with Investec Asset Management to back J&J Africa, a transportation and logistics company based in Mozambique.
Carlyle also teamed up with African industrial conglomerate Dangote Industries to invest in projects across the oil and gas value chain, including exploration, production and refining.
Historically big global firms have steered toward oil and gas investments because it’s an industry they already know, said Mr. Presser.
“They had comfort going into developing regions for exploration and production,” he said.
Blackstone Group and Warburg Pincus made a mint from a $300 million investment in Kosmos Energy Ltd., which has operations off the coast of Ghana. Warburg last yearled a $600 million investment in Delonex Energy Ltd., a London-based company focused on exploration and production across Africa.
Firms have moved further along the energy chain, into power generation, as another way to take advantage of the consumer story in Africa. Blackstone’s portfolio company Black Rhino also teamed up with Dangote to pursue power, transmission and pipeline projects.
But such investments are not without challenges. Earlier this week, Ugandan President Yoweri Museveni criticized private investment firms for passing along the expense of projects to consumers by charging high prices for electricity. Uganda’s Bujagali dam was built by Blackstone in partnership with Aga Khan Development Network.
The relative lack of companies of scale may also preclude Africa from spiriting away capital global firms might commit to other emerging markets.
Mr. Casey of EMPEA pointed to Bloomberg data, which revealed just over 26,000 private companies in the Middle East and Africa. By comparison, Emerging Asia boasts 220,000.
Although there has been something of an uptick of fundraising for funds in the Middle East and Africa of late, it is not without difficulties. Carlyle Group scrapped plans for a second buyout fund targeting the Middle East and North Africa, Private Equity News reported earlier this month.
Source: The Wall Street Journal
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